Working Paper: CEPR ID: DP3519
Authors: Margaret McMillan; Dani Rodrik; Karen Horn Welch
Abstract: Mozambique liberalized its cashew sector in the early 1990s in response to pressure from the World Bank. Opponents of the reform have argued that the policy did little to benefit poor cashew farmers while bankrupting factories in urban areas. Using a welfare-theoretic framework, we analyse the available evidence and provide an accounting of the distributional and efficiency consequences of the reform. We estimate that the direct benefits from reducing restrictions on raw cashew exports were of the order $6.6 million annually, or about 0.14% of Mozambique GDP. However, these benefits were largely offset by the costs of unemployment in the urban areas. The net gain to farmers was probably no greater than $5.3 million, or $5.30 per year for the average cashew-growing household. Inadequate attention to economic structure and to political economy seems to account for these disappointing outcomes.
Keywords: cashew; export taxes; Mozambique; trade policy
JEL Codes: F10; O00; O50
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| liberalization of the cashew sector (E69) | economic outcomes for farmers (Q12) |
| removal of export restrictions on raw cashews (Q37) | economic outcomes for farmers (Q12) |
| liberalization of the cashew sector (E69) | unemployment costs in urban processing sectors (J65) |
| monopsony power of Indian buyers (J42) | economic benefits for farmers (Q12) |
| market structure and political context (L10) | relationship between liberalization and economic benefits for farmers (F69) |
| liberalization of the cashew sector (E69) | net gain for farmers (Q12) |
| liberalization of the cashew sector (E69) | losses incurred by urban workers (F66) |